Sweetheart deals soured

Bill would regulate conglom self-dealing

California State Sen. Sheila Kuehl (D-Los Angeles) has taken up the thorny issue of self-dealing within media congloms.

Kuehl introduced a bill last week designed to crack down on what she called “the growing practice of selling entertainment content…for less than their fair market value.”

The legislation, Senate Bill 1765, dubbed the “Fair Market Value Bill,” has been pushed by the Writers Guild of America West and endorsed by the Teamsters union.

Bill aims to address concerns that media congloms are sometimes motivated to cut sweetheart deals involving the licensing of movies and TV shows among divisions of the same conglom — an issue that has sparked numerous lawsuits during the past decade. The WGA made a point of inserting similar “fair market value” language in relation to new-media deals in the new three-year contract that it reached with the majors earlier this month.

The concern for profit participants — or union members whose residuals are based on a property’s gross revenues — is that a conglom may shortchange them by selling rights to a sibling network or cabler at an artificially low price for other corporate reasons, such as to improve a cabler’s bottom line. When a property is sold at a price lower than what it could fetch on the open market from a nonaffiliated buyer, the pool of coin for profit participants to draw on is smaller than it otherwise would be.

Walt Disney Co. faced a lengthy lawsuit on the self-dealing issue in the late 1990s from the producers of the Disney-produced ABC hit “Home Improvement.” The show’s producers maintained that the Mouse’s studio division breached its fiduciary duty to its profit participants by failing to shop the series to the highest bidder when it came up for renewal on ABC.

News Corp., Time Warner and NBC Universal have faced similar suits from scribes, helmers and actors in which the plaintiffs have claimed they were hurt by sweetheart deals. To date, all of the high-profile cases have been settled out of court.

Steven Bochco’s lawsuit against News Corp. for its sale of the rerun rights to “NYPD Blue” to then-fledgling cabler FX was settled the weekend before it was skedded to go to trial. That suit resulted in News Corp. scrapping FX’s off-network contract for the show in favor of new pacts with two non-affiliated cablers, TNT and Court TV (Daily Variety, April 26, 2001).

Kuehl’s bill does not specify a means of monitoring or enforcing the provision that distribs command “fair market value” in all of their sales of entertainment content, whether with affiliated or nonaffiliated companies. Bill defines “fair market value” as “the most likely price that the assets being sold would bring in a competitive and open market under all conditions requisite to a fair sale; the buyer and seller acting prudently, knowledgably, and in their own best interest; and a reasonable time being allowed for exposure in the open market.”

With all the consolidation among studios, networks and cablers during the past decade, it’s already become common practice for heavy-hitter profit participants to insist that studio dealmaking be reviewed at every step by their lawyers and consultants; such consulting gigs have become a cottage industry for former syndie sales execs.

From the conglom perspective, execs often point to the difficulty of determining fair market value of TV shows and movies in an environment where there may be only one or two prospective buyers for a property. It’s also tough to gauge the value of a show by looking at comparable properties because no two TV shows are quite the same when it comes to what the market will bear for their firstrun and off-network rights.

Filmmakers often grumble about studio licensing of large movie packages to TV. In those sales, a handful of well-known pics are often lumped together with dozens of lesser titles, thereby dragging down the potential coin that the top-tier titles might have commanded on their own.

Kuehl’s bill is expected to land at the state Senate’s Judiciary committee by early April. The WGA is eager to see it passed into law because the guild does not have the same “fair market value” language applying to traditional film and TV deals as it now does in the new-media realm. WGA’s new-media provision calls for transactions between entities with common ownership to be “subject to a test of reasonableness when compared to transactions between unrelated parties.”

Kuehl’s a former actress best known for a recurring role on “The Many Loves of Dobie Gillis.”